Mixed Feelings About Fuel Subsidy Removal – Ukaegbu

Ukaegbu E. Ukaegbu (This article was first published on December 15, 2011 at 10:17 am)

I have a serious mixed feelings about fuel subsidy removal as proposed by President Jonathan. On one hand, I do know that the removal of the fuel subsidy will cause increase in prices of all goods and services thereby causing economic hardship on the people because their income will not automatically increase to off-set the increase in cost of goods and services. Considering the low wages and the degree of poverty already existing, most Nigerians will suffer untold hardship because economic depression will start which will trigger massive health depression on the populace.

On the other hand it makes no economic sense for a country in a capitalist system to keep subsidizing the production and/or distribution of such product. This is because through such subsidy, the country is losing the funds that would have been used in infrastructural development and investment in other critical sectors of the economy such as education, science and technological development, agriculture, road network, jobs, etc.

One of the greatest problems I have about fuel subsidy removal is that the government is not yet ready to handle such action now simply because they do not have functional refineries in the country that are operating a full capacity, which would cater for the demand on such product. Therefore, keeping the fuel subsidy is one of the biggest corporate welfare existing in the country. This means budgeting billions of dollars and giving it for free to a few individuals that run the businesses used in the importation of fuel into the country. Just about two weeks ago, the names of those individuals benefiting from current fuel subsidy were revealed. The worst aspect of it is that these individuals do not reinvest the welfare checks they are getting from the government in the country, rather they siphon it overseas.

On the other hand, if the fuel subsidy is removed today, the country will still have to import fuel today because they are not refining the petroleum in Nigeria, which would have made it possible for market forces to determine the real cost of fuel in the country.

Therefore, the best option now is to first of all make sure that both government and private entities are refining fuel enough that would cater for the needs of the population and then remove the subsidy. If competitive refining operations can not be established in Nigeria, then it makes no sense to remove the fuel subsidy.